Question

Mike Smith has the following financial data.
Investment Assets at Year End	$475,000
Investment Assets at Beginning of the Year	$392,000
Savings Made During the Year by Mike	$27,000
Employer Match to Mike’s 401(k) Plan	$5,000
Total Assets on Ending Statement of Financial Position	$700,000
Gross Income on Income Statement	$100,000
Total Assets on Beginning Statement of Financial Position	$600,000
Total Liabilities at Beginning of the Year	$200,000
Total Liabilities at Year End	$180,000

What was Mike's Return on Net Worth for the year?

Answer 1

Answer;

Return on Net Worth= Net Income/ShareholdersEquity

* To find the RETURN ON THE NET WORTH, firmly we have to find out the Shareholders Equity.

Shareholders Equity= Total assets- Liabilities
Shareholders Equity= 700000 - 475000 = $225000

Now lets calculate Net Income

Return on Net Worth= Net Income/ShareholdersEquity

Net Income = Gross Income - Employer Match plan+savings =100,000 - 5,000 + 27,000

= $122000

Therefore,

Return on Net Worth = $122000/$225000

Return on Net Worth = 54.22%


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